Small businesses with high digital capability are five times more likely to save costs than businesses that have failed to evolve digitally, and two-and-a-half times more likely to report an increase in turnover, new data has shown.

Around 1.6 million businesses and more than 100,000 charities in Britain are in the "digital slow lane" and lack basic digital skills, according to the Lloyds Bank Business Digital Index. 

Despite twice as many organisations developing high digital capabilities since the index launched in 2014, there is still a large digital skills divide with 41pc of businesses in the UK not digitally savvy enough.

The report found that as well as typically generating a higher turnover, digitally developed companies also make cost savings by being more productive and reducing the amount of time employees need to work.  

Highly digitised charities are also more than twice as likely to report an increase in donations with social media being one of the main drivers.

One retailer in Ipswich told Lloyds that tweaks made to his company website, which now allows customers to purchase online rather than just in store, has caused his sales to rise £200 within the first week.

Digitally savvy businesses

Many of the business and charities in the UK that are digitally stunted are so because they believe an online presence is "irrelevant", or that it puts them at risk of online fraud. 

There are around 118,000 organisations in the UK that are not using the internet at all.

While 41pc of businesses and 52pc of charities in the UK are in the digital slow lane, Lloyds said that more than a third of those companies without all basic digital skills are close to having them.

For businesses and charities to have some digital expertise, they need to demonstrate at least one skill in managing information, transacting, communicating online, and using digital to problem solve and create content like adverts and promotional material for their business.

Lloyds said that adopting one or more of these skills gives charities and small businesses an advantage. For many, the benefits include an upturn in productivity thanks to cost savings, trading abroad, and bringing in new customers.

Nick Williams of Lloyds Banking Group, said: “Since launching the index in 2014, we have seen more than twice as many organisations develop high digital capabilities, which shows great progress. This is giving them a shortcut to success in business, increasing sales, improving productivity and giving back almost a day a week in time savings."

Matt Hancock, minister of state for digital, said the vast majority of the most digitally active organisations are saving time, attracting more customers, and marketing and transacting more effectively.

"We must help those organisations that are currently behind the curve realise these benefits too. Thirty-nine per cent of small businesses and charities without full basic digital skills are on the cusp of gaining them. We want to help them do that while supporting the one in 10 organisations that are further behind." 

A report by the House of Commons Science and Technology Committee last year revealed that the digital skills gap costs the UK economy £63bn in lost GDP every year.